Five questions hanging over Thursday’s GameStop hearing

The House Financial Services Committee will hold the first congressional hearing on the GameStop stock market frenzy Thursday.

The list of witnesses includes Robinhood CEO Vlad Tenev, Citadel CEO Kenneth Griffin, Melvin Capital Management CEO Gabriel Plotkin, Reddit CEO Steve Huffman and Keith Gill, a prominent trader on the Reddit subforum r/WallStreetBets.

Here are five key questions lingering over the upcoming hearing.

Can Robinhood temper the DC outrage?

Of all the players in the GameStop saga, Robinhood has evoked the most anger from lawmakers. The company’s decision to shut down purchases of GameStop shares and other Reddit-favored stocks infuriated both Democrats and Republicans, with members of Congress accusing it of preventing customers from reaping the same rewards as other investors.

Critics on the left have raised concerns that Robinhood was not adequately prepared to handle the volatility spurred by the GameStop frenzy, while Republicans feared the consequences of a private company limiting what risks investors could take on their own.

Robinhood also has a history of regulatory lapses, and its CEO will face challenges convincing lawmakers that the company is ready to improve.

“What we experienced last month was extraordinary, and the trading limits we put in place on GameStop and other stocks were necessary to allow us to continue to meet [regulatory requirements],” Tenev said in prepared testimony released by the committee Wednesday.

“There are certainly lessons to be learned from the events of the last month, and Robinhood looks forward to being part of the conversation around these issues moving forward.”

How deep in the weeds will lawmakers go?

The easiest thing to understand about the GameStop saga is that it stole the attention of Washington, Wall Street and the general public, made some folks a ton of money, and led to significant financial losses for others, too. The hardest thing to figure out is what—if anything—can be done to prevent something similar from happening again.

Lawmakers may press Tenev on Robinhood’s usage of payment for order flow—a system in which stock brokers sell the ability to execute trades to market makers so their customers can avoid paying higher transaction fees. Tenev may also face questions about why Robinhood couldn’t afford to increase its collateral obligations—how much money it is required to put up to protect itself against volatility—after they rose substantially amid the GameStop volatility.

Griffin and Plotkin are likely to get pepped with questions about whether investors should be required to increase disclosure of their short positions on stocks, and whether Citadel Securities was living up to its “best execution” requirements, a legal standard meant to ensure investors get the best price for their transaction.

How much finger-pointing will there be?

High-profile hearings about controversial events often devolve into lawmakers beating up on politically unpopular targets, and the GameStop hearing provides plenty of easy targets.

While Robinhood will take its share of body blows from anti-Big Tech lawmakers on both sides of the dais, expect Democrats to gang up on Plotkin—the hedge fund manager who’s short position on GameStop sparked the rally—and Griffin, a prominent Wall Street veteran who bailed out Plotkin when his firm took losses and also founded Citadel Securities, a marketmaker that processes more than half of all stock orders on Robinhood.

Huffman and Gill may also take heat from lawmakers over their roles in fueling the GameStop frenzy, especially if any of their constituents lost money following prominent WallStreetBets traders.

Will we actually learn anything about what went down?

All of the key witnesses are likely to stick to their pre-hearing explanations and disavowals of any wrongdoing. Tenev will argue that Robinhood cut off GameStop purchases to protect itself and its customers, Plotkin will say that he’s learned his lesson from the short squeeze on his firms, and Griffin is expected to reiterate that Citadel Securities had no role in Robinhood’s shutdown of Reddit-favored stocks and that the Citadel hedge fund’s investment in Melvin Capital was simply a smart long-term play.

Any new details about the frenzy may not be revealed until after the Securities and Exchange Commission (SEC) acts on its probe of the GameStop episode.

Will this move the ball on new regulation?

Democrats have long called for boosting disclosure requirements for hedge funds, defining market manipulation more specifically, and boosting capital safeguards for stock brokers. While legislation to do that may be hard to pass through a narrowly-controlled Congress, the SEC may take up the mantle if Gary Gensler, Biden’s pick for commissioner, is confirmed by the Senate.